The net income per books of Lyondell Industries Limited was determined without any knowledge of the following errors. The 2008 year was Lyondell's first year in business. No dividends have been declared or paid.

Instructions
(a) Prepare a work sheet to show the adjusted net income figure for each of the six years after taking into account the inventory corrections.
(b) Prepare a schedule that indicates both the original retained earnings balance reported at the end of each year and the corrected amount.
(c) Consider the trends in the increase in income from 2008 to 2013 as originally reported and as revised after the corrections.
Would you suspect that the income is being manipulated by adjusting the ending balance in the inventory account?

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Net Income per Books $50,000 52,000 54,000 56,000 58,000 60,000 Year Error in Ending Inventory 2008 2009 2010 2011 2012 2013 $ 5,000 9,000 11,000 Overstated Overstated Understated No error Understated Overstated 2,000 10,000